Central bank keeps interest rate at 3.25 percent for 10 consecutive months


The Bank of Korea hinted Friday that it would neither hike nor slash the benchmark interest rate over the next few months unless there are unexpected factors.

Remarks by BOK Gov. Kim Choong-soo seemingly raised the possibility that the central bank could keep the key rate untouched for at least several months.

On the day, the BOK’s monetary policy committee kept the rate unchanged at 3.25 percent for the 10th consecutive month.

Kim said the monthly rate-setting was “unanimous” among committee members this time, reflecting the central bank’s stance of there being little necessity for a rate-hike or rate-cut for the time being.

During a news briefing, Kim hinted that the central bank is taking a wait-and-see approach as the economy has been on a gradual recovery while worries over the eurozone debt crisis have resurfaced.

“There are symptoms of a growth pace on a gradual basis. Though there are still risky external factors, we expect the economy will eventually recover its long-term-based growth pace,” he said.

Commenting on consumer prices, he said, “The BOK would consider taking tighter monetary policies (several months later) after the economy goes into a phase of steady growth.”

Korea Investment & Securities forecast that the rate-freeze will continue until the end of this year.

An analyst of the brokerage firm said the BOK governor’s remarks could not be interpreted as a sign there would be a rate-hike soon. He said a tighter monetary policy would be feasible when the global economy is recovered.

“In addition, as the inflationary pressure is still high, it is difficult for market participants to expect a rate-cut from the central bank,” he said.

BOK Gov. Kim predicted that while consumer prices have come down, it may not be until 2013 that numbers will come down to meet the central bank’s target range of 2-4 percent.

In March, Korea’s consumer price index rose 2.6 percent on-year and lost 0.1 percent from the month earlier.

Last month’s reading is the lowest in 20 months and marks the first time since August 2010 that inflation was in the 2 percent range. In 2011, the country’s consumer prices shot up 4 percent.

On overall economic developments, the BOK said the U.S. economy is showing signs of improvement, but economic activities in the euro area remained sluggish, with growth in emerging markets continuing to exhibit signs of weakening because of slowing exports.

The pace of economic recovery will be moderate, with developments in Europe’s sovereign debt and geopolitical risks in the Middle East needing to be monitored, it said in a statement.

By Kim Yon-se (kys@heraldcorp.com)